MASTER U) Z Petroleum Development in Russian Barents Sea
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—..- -, w l-” = 1- MASTER u) z Petroleum Development in Russian Barents Sea: Driving Forces and Constraints By Arild Moe and Anne-Kristin Jm-gensen L o ‘-3 Ili Oc IL FNI Report 7/2000 @ DISCLAIMER Portions of this document may be illegible in electronic image products. Images are produced from the best available original document. FRIDTJOF NANSENS INSTITUTT THE FRIDTJOF NANSEN INSTITUTE Tittel/Title Sider/Pages Petroleum Development in Russian Barents Sea: Driving Forces 62 and Constraints Publikasjonstype/Publication Type Nummer/Number FNI Report (also published in Post-Soviet Geography and 7/2000 Economics, 2, 2000) Forfatter(e)/Author(s) ISBN Moe, Arild and Anne-Kristin Jmgensen 82-7613-394-0 Program/Programme ISSN 0801-2431 Prosjekt/Project 0047 Sammendrag/Abstract The potential of the Barents Sea for petroleum production has attracted interest for many years. In the Russian sector of this ocean, enormous gas finds and substantial oil resources have now been proven, and the first real licensing for field development in the area has just begun. Despite the area’s potential, there are strong conflicts of interest. The report examines the forces alterna- tively driving and hindering offshore hydrocarbon development in the Russian sector of the Barents Sea. It describes exploration activities beginning during the Soviet period and extending to the present. The status of the major development projects financed in part with foreign capital, and conflicting regional and central government interests involved in such development, is described and evaluated. Coverage includes a discussion of the various regional interests in petroleum activities, with a particular focus on the conversion of naval yards in the area and the emergence of Rosshelf, an oil/gas conglomerate formed to facilitate such conversion. It also reviews the planned licensing rounds and the results of the first round. Finally, it discusses supplies from the Barents Sea in the context of overall Russian energy supply and energy development strategies. Stikkord/Key Words Russi~ offshore, oil, gas, Barents Sea Bestilling til/Orders to: Fridtjof Mmsen Institute, Postboks 326, N-1326 Lysaker, Norway. Tel: (47) 67111900 Fax: (47) 67111910 Email: [email protected] Table of contents INTRODUCTION .................................................................................................................................. 3 Ewly Development ..............................................................................................................................3 THE RESOURCE POTENTIAL OF THE RUSSIAN BARENTS SEA ............................................ 5 Surveying and Exploration after 1991................................................................................................. 5 Present Drilling Activi~ .................................................................................................................... 10 STATUS OF DEVELOPMENT PROJECTS ................................................................................. 12 Prirazlomnoye Field .......................................................................................................................... 13 Shtokmanovskoye Field .................................................................................................................... 14 REGIONAL INTERESTS ................................................................................................................... 16 General Situation in Murmansk and Arkhangel’sk Oblasts and the Nenets Okrug ........................... 17 Regional Complexes Supporting Offshore Development .................................................................20 Industrial Spin-off Effects from Shelf Development ......................................................................... 23 Energy Supplies to the Regions .........................................................................................................25 “Regional” Oil and Gas Resomces ....................................................................................................26 NAVAL SHIPYARDS — ASSET OR CONSTRAINT? . ................................................................... 27 General ..............................................................................................................................................28 Conversion ......................................................................................................................................... 30 “The Shelf Will Feed Eve~body...'' ................................................................................................. 32 The Establishment of Rosshelf .......................................................................................................... 33 Legal framework ............................................................................................................................... 38 Licensing in the Barents Sea .............................................................................................................4O Results of the First Tender .................................................................................................................43 Outlook ..............................................................................................................................................44 OVERALL DEWD PICTURE ..................................................................................................... 44 OTHER CONSIDERATIONS ............................................................................................................ 50 CONCLUSIONS ................................................................................................................................... 52 REFERENCES ..................................................................................................................................... 57 Frid~of Nansen Znstitute INTRODUCTION The potential of the Barents Sea for petroleum production has attracted interest for many years. In the Russian sector of this ocean, enormous gas finds and substantial oil resources have now been proven, and the first real licensing for field development in the area has just begun. Despite the area’s potential, there are strong conflicts of interest. The main “contestants” are the authorities of the adjacent coastal regions, large Russian energy companies, and the military. At the same time, prospects for development also are affected by the unsettled balance of power between the federal center and the regions. In this paper, we describe the resource potential and current status of petroleum exploration and development activities on the Russian continental shelf in the Barents and Pechora seas and then proceed to analyze regional interests and the role of shipyards in the area. The licensing round carried out in 1999 is described alongside plans for further rounds. In conclusion, we examine the role of the region in the overall Russian energy supply picture. Early Development The Soviet Union initiated seismic surveys in the Barents Sea in the early 1970s, spurred by theories of Soviet geologists who maintained that the area contained significant petroleum resources. After 1978 extensive surveys, concentrated mainly in the area between Novaya Zemlya and the Kola Peninsula, were performed. In total, the seismic surveys covered a huge area, and several structures were identified. However, at the time Western specialists raised doubts concerning the Soviet capacity to analyze the collected data. Prior to the mid-1980s, no co-operation existed with foreign companies with respect to data gathering or analysis; however, considerable amounts of equipment were imported for use in the Barents Sea. Exploration drilling began in 1981 in the southeastern portion of the Barents Se%which also is referred to as the Pechora Sea. The drilling took place on the Dresvyanskaya structure at the mouth of the Pechora River, fi-omthe platform Sevastopol’, based on a converted Liberty ship anchored in the shallow waters. This represented a quite primitive Fridtjof Nansen Institute 3 technological solution that could not be applied in deeper waters. In order to carry out operations in deeper waters, imported technology was needed. Special attention was devoted to the purchase of three drillships fi-omFinland in 1979. Two of them, l’alentin Shashinand ViktorMuravlenko, delivered in 1981 and 1982, came to play a key role in subsequent exploration. These ships were designed for arctic drilling down to 6000 m in water depths of 300 m. They were equipped with dynamic positioning systems from Norway’s Kongsberg Vi?ipenfabrikkand were considered the most advanced ships for arctic offshore drilling at the time.2 In addition to the two drillships, three semi- submersible rigs— Shelf5,6, and 7, built in Vyborg— and two jack-ups— KoMaya and Murnzanskaya,built by Rauma-Reppola in Finland — were employed. Thus by the beginning of the 1990s altogether seven drilling rigs were operating in the Russian sector of the Barents Sea (Moe, 1994). These rigs had carried out drilling on a total of 21 structures by 1991; 41 wells were drilled, of which 26 were completed. This is a small number compared to the number of drilling units, even if one takes into account the short work season and the inexperience of the crews. The discovery rate was quite good, however, and nine interesting fields were discovered, including the giant Shtokmanovskoye gas and condensate field (1988) in the northwestern part